The recent Supreme Court order which temporarily closed down 26 iron ore mines in Odisha for non-renewal of years old leases will significantly bring down capacity utilization in the domestic iron and steel industry and push up finished steel imports.

In the last financial year, Odisha produced over 70 million tonnes of iron ore from 56 operating mines. The 26 iron ore mines that have been temporarily closed on the order of the Supreme Court accounted for 40 million tonnes of iron ore. The state government is likely to renew the leases of 10 iron ore mines out of the 26 in the next two months. The 10 mines together produced about 20 million tonnes of iron ore in the last financial year.

The Associated Chambers of Commerce and Industry of India has written to Union Finance Secretary Dr. Arvind Mayaram seeking a ban on iron ore exports by the National Mineral Development Corporation to deal with the current crisis facing the industry as a result of the temporary closure of the 26 iron mines.

NMDC is the largest iron ore producer in the country with a production capacity of 32 million tonnes. It sells over 90 percent of the produce in the domestic market apart from exporting to Japan and Korea under long-term supply agreements. In 2012-13, the company’s iron ore production was over 27 million tonnes of which 1.6 million tonnes was exported. In 2013-14, its iron ore production stood at 30 million tonnes and exports totaled 2.5 million tonnes.

According to ASSOCHAM, India’s steel production is likely to remain about 86 million tonnes in the current financial year with the sector facing iron ore shortage of 40 million tonnes. It said that if NMDC did not stop iron ore exports, the shortage could increase by about 2.5 – 3 million tonnes reducing steel production by about 2 million tonnes.

In the letter to the Union Finance Secretary, the industry body urged the new government to reduce import duty on iron ore (lumps, fines and pellets) to zero from the current levy of 2.5 percent in order to safeguard the cost-competitiveness of the domestic industry.

“The recent Supreme Court order to ban illegal mining in Odisha (which accounts for over half of India’s total iron ore production), may result in domestic iron ore production falling to 100 million tonnes in the current FY 2014-15 thereby jeopardizing job safety of about 1.25 lakh people directly and indirectly engaged in iron ore production in the country which had notably declined to 136 million tonnes in 2013-14 from peak production level of about 218 million tonnes in 2009 -10,” said D.S. Rawat, Secretary General of ASSOCHAM.

Rawat added that fall in domestic iron ore production would not only impact the domestic iron and steel industry but also have a cascading effect on other sectors of the economy dependent on steel.

The ASSOCHAM letter pointed out that severe shortage of iron ore in the country had forced the sponge iron units and integrated steel producers to reduce their capacity utilization which came down to about 81 percent in 2012-13 from about 88 percent in 2010-11.